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December 15, 2017
Trust accounting – basic records and procedures

By Matthew Herdeker
Orlando Branch Auditor, Florida Bar

Chapter 5 of The Rules Regulating the Florida Bar requires attorneys using trust accounts to maintain specific records and perform monthly procedures.

Many attorneys are unaware of these requirements. Others believe they do not have enough time or resources to devote to the trust account. Some claim they are not good with numbers and devise their own recordkeeping system. The only way to reliably protect client funds, though, is to follow Chapter 5’s guidelines. By neglecting the trust account, attorneys put their clients’ funds, and their own license, at risk.

The following are the basic trust accounting records attorneys must maintain and the procedures they must perform:

Bank Records. These include monthly bank statements, deposit slips, wire details, and the fronts and backs of canceled checks. Attorneys should get these records every month from the bank, because the bank may not be able to provide records more than a few years old. Banks often dispose of records pursuant to their retention policies and can even lose records. Attorneys should receive bank statements directly from the bank, unopened, to prevent tampering by dishonest employees.

Receipts and Disbursements Journal. This is a chronological list of every transaction in the trust account. The journal shows activity in the account for all clients. Like a checkbook register for a personal checking account, the journal shows the date, source/payee, amount of the transaction and balance for the entire account. The journal must also identify the client and the reason for each transaction.

Ledger Cards. Ledger cards show all transactions for individual clients. There must be a separate ledger for each client, and it must identify the date, a description, and the amount of transactions. Each ledger should also contain a running balance, showing the balance the client has in the trust account at any given time. If the journal for the entire account was sorted by client, the result would be ledger cards.

Monthly Reconciliation. Every month, attorneys must reconcile (match) the balance in the bank account with the balance in the journal. The bank account balance, plus outstanding deposits, minus outstanding checks, must equal the balance in the journal. Most banks provide step-by-step instructions on how to reconcile with the bank statement. Deposits that have been outstanding for more than a few days, and checks that have been outstanding for several months warrant research.

Monthly Comparison. Every month, attorneys must compare the total balances of the ledger cards to the reconciled bank balance, and the two must match. If the reconciled bank balance is less than the total of the ledger cards, there could be a shortage in the account. If the reconciled bank balance is more than the total of the ledger cards, there’s an unidentified balance of funds in the account.

The Written Plan. Law firms with more than one attorney must maintain a written plan for supervision and compliance of the trust account. The plan must identify the lawyer(s) responsible for signing trust checks, reconciling the account, and answering questions about the trust account. Firms must give the plan to each lawyer in the firm and updated it with any material changes.

Attorneys must maintain the above records for at least six years.

There are many resources available to help attorneys maintain a compliant trust account. The Practice Resource Institute (PRI) section of the Bar’s website (pri.floridabar.org/accounting-finance/trust-accounting) contains links to the trust accounting rules, forms, sample trust reports, and frequently-asked-questions. The PRI section also features a link to an hour-long video — Maintaining A Trustworthy Trust Account — which provides an excellent overview of trust accounting. Attorneys could also consider hiring an outside bookkeeper or CPA to handle their trust accounting. There is also a CPA in each Bar branch available to answer general trust accounting questions.

Although trust accounting may seem complicated, it’s not. An attorney does not have to be an accountant to comply with the rules. Knowing the rules, and consistently applying them, are key to protecting clients’ funds.

[Revised: 12-18-2017]